Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 326 JUNE 2016 • FOGHORN FOGHORNFOCUS: OPERATIONS & MAINTENANCE A t the PVA Annual Convention at MariTrends 2016, we presented a session, “Business Management: Budgeting for Maintenance,” which was well attended, confirming industry interest in effectively budgeting for maintenance. We need not look too far to realize that the cost aspects of caring for any infrastructure – marine or otherwise – impact the bottom line sufficiently so as to derail many attempts to adequately plan and budget for it. We like to say, “If you’re responsible for ‘maintenance,’ you’re a steward of both your organization’s bottom line and the assets you maintain. If those assets aren’t sailing, revenue is affected and that is a huge issue.” Intelligent maintenance strategies are fast evolving in the industry, ultimately making it simpler than ever to get a predictive handle on costs. To tackle the financial side of maintenance you’ll need to become familiar with: • Life Cycle Cost • Present Value • Future Value • Sinking Fund Analysis • Mean Time Between Failures We know you’re thinking this will be difficult financial stuff, but don’t despair. These basic principles are easily un- derstood. And we’ve come up with an approach that will help you apply them easily to your operation. Life Cycle Cost Analysis (LCCA) This is a process of evaluating the economic perfor- mance of a maritime asset (e.g., a tug boat) over its entire life. LCCA considers and balances initial monetary invest- ment with the long-term expense of owning and operating the asset, and ultimately disposing of it. For complex assets such as those found in the maritime industry, an asset with an expected 30 year life might have a total life cycle cost where maybe 25% represents the initial asset purchase and the remaining 75% might include fuel at 50%, maintenance at 10%, service work at 7.5%, and replacements at 7.5%, all at present value (i.e., today’s dollars). LCCA should be a part of the process of acquiring any asset and can help focus on possible maintenance costs. LCCA is evolving further nowadays, but this basic approach is a great starting point. Present Value This is the current worth of some amount of money. Between us, Beau and I have $57 in our wallets as we write this. The “Present Value” of the money we have right now is $57. Another way to think of it is which would you rather have $1,000 today or $1,000 five years from now? We hope you said $1,000 today! Future Value This concept takes the Present Value and predicts worth at some time in the future. In finance, there can be many “twists” to future value, but our approach with this financial concept is very basic: The engine you buy today to repower your tug will be more expensive in the future. How much more expensive is hard to say, but the overall average rate of price escalation (“inflation”) in the U.S. from 1913 to 2013 has been 3.22%. Precisely determining the future cost of that engine is not possible, but Future Value Analysis will help you develop a reasonable estimate of the cost. You should note that you will also need to know how many years in the future you will need that engine. “Sinking” Funds These are places to park money for some number of years while it accrues interest. It’s like investments or savings accounts, except you’re saving for a future main- tenance need — the “rainy day.” Sinking fund analysis is the process you use to decide how much you need to put in your “savings account” (say, each year) knowing you need the money in the future. Some organizations open “Capital Accounts” and fund them annually in anticipation of future needs. Mean Time Between Failures (MTBF) The only piece missing in our consideration of how to start budgeting is how long to save for a given need. That’s where MTBF comes in. For our purposes, we’ll consider MTBF as the average time between two “failures” of a component or an entire system. No failures to work with? Make an educated guess of component life span (you are your organization’s maintenance expert and have endured a number of experiences which place you in an excellent position to guesstimate). Ready to give it a try? Let’s consider a vessel-repower- Budgeting Concepts for Maintenance in the Maritime Industry By Captain John C. Cronin, Jr., P.E., and Captain Beau E. Payne